We've Had Depressions More Productive Than This

The current economic malaise in the United States may soon tip back into formal recession again. Even if it doesn't, there's one way to examine the country's plight that has us in a worse position than during the Great Depression. Joblessness hasn't hit Depression-era levels, but neither has the rate of innovation, company creation, and workforce development, David Leonhardt argues in The New York Times. For a more contemporary comparison, the U.S. is doing a worse job than countries in Northern Europe and Asia at training workers and equipping the young with bachelor's degrees. That could mean the country will limp out of its current economic position, without the hiring and startup energy that are markers of actual good times returning.

The U.S. now seems destined to live as countries in Europe did for the past several decades: "rich but struggling."

Partly because the Depression was eliminating inefficiencies but mostly because of the emergence of new technologies, the economy was adding muscle and shedding fat. Those changes, combined with the vast industrialization for World War II, made possible the postwar boom.

In recent years, on the other hand, the economy has not done an especially good job of building its productive capacity. Yes, innovations like the iPad and Twitter have altered daily life. And, yes, companies have figured out how to produce just as many goods and services with fewer workers. But the country has not developed any major new industries that employ large and growing numbers of workers.

For this problem, one cause is the failure to develop a well-trained workforce, as the cost to obtain a college degree continues to form an obstacle to progress, Leonhardt argues. There's also the problem of the country's existing dominant industries: housing, health care, and finance. All three have seen recent growth (though housing has since collapsed), but don't necessarily represent the best direction for the country in the longterm.

The common question with these industries is whether they are using resources that could do more economic good elsewhere. “The health care problem is very similar to the finance problem,” says Lawrence F. Katz, a Harvard economist, “in that incredibly talented people are wasting their talent on something that is essentially a zero-sum game.”

Both Leonhardt and The Washington Post's Ezra Klein refer readers to the work of Carmen Reinhart and Ken Rogoff, economists Klein calls the "most prophetic ... Cassandras" in the earliest days of the Obama administration. Rogoff and Reinhart tried in vain to warn policy makers, including the economists who swept into office with Obama, that the coming recession would be deeper and longer than anyone was predicting, especially in its impact on employment.

"In 2008," Klein writes in a lengthy essay about the miscalculations of Obama's economic policy, "the two economists were about to publish 'This Time Is Different,' their fantastically well-timed study of nine centuries of financial crises."

In their view, the administration wasn’t being just a bit optimistic. It was being wildly, tragically optimistic.

That was the dark joke of the book’s title. Everyone always thinks this time will be different: The bubble won’t burst because this time, tulips won’t lose their value, or housing is a unique asset, or sophisticated derivatives really do eliminate risk. Once it bursts, they think their economy will quickly clamber out of the ditch because their workers are smarter and tougher, and their policymakers are wiser and more experienced. But it almost never does.